Saving enough for retirement is something to be proud of.  But even if you’ve bucked the trend and amassed a good-size nest egg, it’s critical to have a sound strategy for withdrawing your money.  Living large early in retirement could cause you to run out of money in your later years, after all. On the other hand, too much thrift could lead to a joyless retirement.

Interestingly, many Americans use a “chunk or nothing” approach to savings withdrawals.  In studying five years of data from more than 30,000 households, research firm Hearts & Wallets found that a third of older Americans took no retirement income from personal assets.  About a quarter took “unsustainable rates in chunks of over 8%, over 9%, or more.”

Those are two striking extremes.  Why might retirees dip too heavily into their savings?  Hearts & Wallets suggests that the reasons include the euphoria of early retirement and the desire to live without regrets.  At the other end of the spectrum, many wealthy retirees live well below their means.

There is no universal rule for how much of your savings you should withdraw each year in retirement.  Many experts cite 4% as a sustainable withdrawal rate, but the answer for each individual truly depends on their personal situation.

Following a formula that dictates identical-sized withdrawals each year for the rest of your life may make sense for some retirees but not others.  Since many retirees will be most active early in retirement, it may be wise to plan for more income to cover that period.

Likewise, later retirement years may cost less due to less discretionary spending ‒ so it may make sense to budget less income for that period.  Your health, life expectancy and other factors also come into play, of course.

Emotions and money are almost always intertwined, and retirement income is no exception, Hearts & Wallets found.  Many Americans, according to the study, “want to use their savings in chunks to do things they’ve always wanted while health permits, but feel ashamed in doing so.”  The reason appears to be the wide consensus that taking steady and consistent withdrawals is the only responsible course of action.

The Hearts & Wallets study suggests that many retirees would value customized retirement income plans rather than a one-size-fits-all formula.  In fact, two-thirds indicated that they “favor occasional splurges alternating with periods of frugality.”

Our goal as retirees should be to live as comfortably as possible without fear of outliving our money.  If you would like help developing a retirement income plan, we may be able to help.  That’s just part of what we do.